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Former AIG, GenRe Execs in Talks to Settle Reinsurance Case

Federal prosecutors and lawyers for five former insurance executives accused of engineering a bogus reinsurance transaction to mask a drop in reserves at American International Group Inc. are in settlement talks, according to a joint court filing made late Thursday.

The disclosure of settlement talks was tucked into a procedural request made by both sides to push back by two weeks the briefing schedule for pretrial motions in the case. "If such discussions result in such a resolution, that would obviate the need for the filing of the pretrial motions…thus saving the parties and the Court significant resources," read the filing, made in federal court in Connecticut.

A settlement would end a lengthy legal battle between federal prosecutors and the defendants, four former General Re Corp. executives and a onetime AIG executive.

Last year, a federal appeals court threw out convictions of the five individuals, including former General Re chief Ronald Ferguson, and ordered a new trial, citing in part the improper introduction of evidence regarding a drop in AIG's stock price after news of the government probe became public.

The conviction in February 2008 had been seen as an important step forward in the government's efforts to prosecute financial crime. After the trial, prosecutors said they planned to "work up the ladder" to ferret out wrongdoing.

A spokesman for the U.S. attorney's office in New Haven, Conn., declined to comment on Friday.

The federal criminal case grew out of investigations in 2005 by the Securities and Exchange Commission and the New York state attorney general's office into AIG's accounting.

Prosecutors had argued that the General Re executives agreed to engage in a sham transaction with AIG, the reinsurer's largest client at the time. The deal improperly boosted AIG's earnings, which artificially inflated its stock price, the government said.

Mr. Ferguson, Christian Milton, a former AIG vice president, and three former Gen Re executives, Chris Garand, Elizabeth Monrad and Robert Graham, were convicted of conspiracy, fraud and other charges in 2008. The defendants were sentenced to prison terms ranging from 18 months to as long as four years, but were freed during their appeal.

A lawyer for Mr. Garand declined to comment. Lawyers for the other defendants didn't return calls seeking comment.

The verdict came just months before AIG took a government bailout amid the depths of the financial crisis and faced an array of other problems related to the housing market.

Last August, the U.S. Court of Appeals for the Second Circuit vacated their convictions, saying the lower court erred in allowing prosecutors to introduce evidence of a drop in AIG's stock price after news became public in 2005 that regulators were looking into the 2000 reinsurance transaction. The appellate court also said the District Court erred in its jury instructions.